Listed Restaurants Outperform Owner-Operated Establishments

One in four restaurants will permanently close by the end of the year, costing the country millions of jobs and at least one full percentage point of GDP.

Yet for many of the country’s large and publicly traded restaurants, business would seem to be nothing but all-time highs.

Disproportionate beneficiaries of government stimulus, prestigious banking relationships, and large capital buffers, their valuations tell the candid story of the U.S. recovery.

Consider McDonald’s (NYSE:MCD) whose stock price dipped as low as -37% during the trough of the COVID-19 pandemic. As of today, its share price has fully recovered and then some, trading 6% higher than its January 2, 2020 opening trade.

Del Taco (NASDAQ:TACO) is enjoying the same 6% year to date (YTD) gain. Jack in the Box (NASDAQ:JACK) is not far behind, gaining 4% YTD.

All of these companies have strong drive-through installations that have buoyed sales.

Even publicly traded, sit-down dining franchise Texas Roadhouse (NASDAQ:TXRH) was able to pivot into food delivery during coronavirus. Shares closed for trading today 7% higher YTD.

Contrast those growth rates — not with the growth rates of independent restaurants — but rather with the forecasts of independent restaurants’ bankruptcy rates.

Although owner-operated restaurants do not have intraday quotations of their shares on public exchanges, closures could exceed three in four if no additional fiscal stimulus passes Congress’ current gridlock. More realistically, estimates for the actual closure rate of owner-operated restaurants was estimated at 25% in April, and that percentage just received a strong reiteration by OpenTable’s CEO this month.

Small restaurants also rely heavily on third-party delivery services, with up to three in four UberEats partner restaurants claiming they would have closed without the support of its app-initiated food orders.

As of data from July 10, of Yelp’s 26,160 restaurateurs who reported as ostensibly “temporary,” tragically 60% of them had permanently closed. For the remainder, their rate of temporary closure has unfortunately been falling relative to their rate of permanent closure.

Public companies that compose prestigious indices — such as S&P 500 constituents Darden Restaurants, Domino’s, McDonald’s, Starbucks, and Yum! Brands — preferentially benefit from passive investment. Passive investment is ultimately responsible for 40% of all U.S. investment inflows, according to analysis from Logica‘s Mike Green.

Large restaurants with even billionaire owners also received free government handouts. We reported on billionaires receiving forgivable Paycheck Protection Program (PPP) loans. Staff reporting on this subject earned the title and cover of Forbes magazine.

Today, CDC Director Robert Redfield revealed his estimate that between 30 and 60 million people in the U.S. might have COVID-19 antibodies. He reminded listeners that in some areas, that rate could locally equal less than 1% of the population; in other areas, it could exceed 20%. Herd immunity in the Spanish Flu was achieved once approximately 20% of the U.S. population had antibodies.

Note: The infection, transmission, and fatality rates of COVID-19 are distinct from the Spanish Flu.

Fortunately, we do know that the hospitalization rate has fallen for four consecutive weeks. There are currently 41,968 patients hospitalized with COVID-19 in the U.S.

Graphic by The COVID Tracking Project at The Atlantic (CC BY-NC-4.0). Photo by Erik Mclean on Unsplash

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